Oil Prices: If This Happens, We Could See a Super Spike in Oil Prices

This Could Send Oil Prices Soaring

Libya, a member of the Organization of the Petroleum Exporting Countries (OPEC), supports freezing oil production increases. Last week, Saudi Arabia and Russia, along with other OPEC members, agreed not to raise oil output to stabilize prices. But, Libya would like to increase the output when market conditions allow. There had been talk that Libyan oil production would further boost the world output, putting more pressure on prices. Nevertheless, even as Libya remains a disaster, it won’t be affecting oil prices at all in the near -term. The country remains too unstable for any meaningful production increase to occur.

Libya has lost tens of billions of revenues since the collapse of the Qadhafi regime in 2011. Libya’s oil company, the National Oil Corporation (NOC) has lost operating plants and ports. Oil production has plummeted to 362,000 barrels per day, or about 20% of what it was in 2011.

Libya remains divided between two governments, which are fighting for what remains of the oil revenues. A Libyan militia, one of hundreds that have mushroomed in the country since it was “liberated”—no thanks to NATO forces—controls some oil-producing facilities.

Islamic State (IS), which has been moving into Libyan territory with increasing intensity over the past months, has advanced from its stronghold in Sirte to the eastern oil areas of Libya. Unlike Syria, where IS smuggles oil, presumably selling it through Turkey, to finance its operations, Islamic State has destroyed oil facilities in Libya. It understands that it cannot exploit Libyan oil for commercial interests as in Syria. Therefore, IS destroys facilities to create economic problems, preventing national reconciliation and maintaining the state of anarchy that allows it to expand there.

Libya is facing lawlessness, civil war, tribalism, and the appetites of Islamist terrorism. It is in the midst of an epochal crisis that might be likened to Somalia on steroids. However, Libya also floats on a sea of high-quality, sweet crude oil. Italy’s Eni, for years the largest foreign oil company in Libya, a former Italian colony, still manages to exploit the country’s oil wells. Eni has been able to maintain a dominant role in the country thanks to the “protection” of different militias and tribes. Other companies, such as France’s Total, Spain’s Repsol, and America’s Marathon Oil, have left their activities because of the deteriorating situation.

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